INDUSTRY INSIGHT
YOUR FINANCES
DO YOU NEED DISABILITY
INCOME INSURANCE?
P
eople ordinarily buy property and casualty insurance to protect their
possessions (houses, cars, and furniture) and life insurance to provide
income for their survivors. However, many people don’t think about
protecting their income with disability income insurance. But how well
could you live if you weren’t able to work? Disability is an unpredictable
event, and if you become disabled, your ability to make a living could be
restricted. Although you may have enough money in the bank to meet
your short-term needs, what would happen if you were unable to work for
months or even years? The real value of disability income insurance lies in
its ability to protect you over the long haul.
A LOOK AT THE ODDS
Your need for disability income insurance may be greater than you
think. Here are some important disability statistics to consider:
• The Social Security Administration estimates that a 20-year-old worker
has a 3 in 10 chance of becoming disabled before reaching retirement
age. (Social Security Disability Benefits, SSA Publication Number 0510029, June, 2012)
• There is a 25 percent likelihood of incurring a disability by age 50,
according to the 1985 Commissioner’s Individual Disability Table A
(the most recent data available)
As these statistics show, your chances of being disabled are great. Of
course, statistics can be misleading--you might never become disabled.
But then again, how many of your friends and family members have been
in car accidents?
Disability can be caused by illness as well as injury. How many people
do you know who have suffered a heart attack or stroke? If you became ill,
how would you support yourself or your family?
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n Social Security: Although you shouldn’t overlook the disability
benefits you may be eligible to receive from Social Security, you
shouldn’t rely on them, either. Social Security denies many claims, in
part due to its strict definition of disability. Even if you are deemed
eligible for benefits, you still won’t begin receiving them until at least
six months after you become disabled because Social Security imposes
a waiting period. In addition, your benefit may replace only a fraction
of your predisability income.
n Workers’ compensation: If you’re injured at work or get sick
from job-related causes, you may receive some disability benefits from
workers’ compensation insurance. The amount you receive depends
on the state you live in. However, when you review your disability
income insurance needs, remember that workers’ compensation pays
benefits only if your disability is work related, so it offers only limited
disability protection. Some states also cover only the diseases or
disabilities outlined in that state’s workers’ compensation laws.
n Pension plans: Some government and private pension plans
pay disability benefits. Often, these plans pay benefits based on
total, permanent disability, or reduce your retirement benefit in
proportion to what you have already received for a disability. In
addition, remember that these benefits are usually integrated with
Social Security or workers’ compensation, so your benefit may be
less than you expect if you also receive disability income from these
government sources.
WHAT WOULD HAPPEN IF YOU BECAME DISABLED?
What would happen if you suffered an injury or illness and couldn’t
work for days, months, or even years? If you’re single, you may have no
other means of support. If you’re married, you may be able to rely on your
spouse for income, but you probably also have many financial obligations,
such as supporting your children and paying your mortg